From “Summer Chic” with some edits
The investment banker was acting as the agent or conduit for both the actual creditor (“investor) who was lending the money to an investment bank and the homeowner “debtor” (borrower) was “borrowing” the money. Credit Default Swaps realte not to thye “laons” but rather tot he securities. The payment of proceeds in a CDS (especially “total return” CDS) accomplished one or more of the following:
- Cure of any virtual or actual “default” by the “debtor” as far as the virtual “creditor” was concerned, since all securitization players received the money that was payment in full for any money they were promised.
- Satisfaction through payment of all or part of the borrower’s obligation.
- Obfuscation of the real accounting for the money that exchanged hands
- Payment of an excess amount above the amount owed by the debtor which might be a liability to the debtor under TILA, a liability to the investor, or both, plus treble damages, rescission rights, and attorney’s fees.
- Opening the door for non-creditors to step into the shoes of a virtual creditor who has been paid, and claim that the debtor’s non-payment created a “default” — even though the creditor or his agents is holding money paid on the “obligation” that either cures the default, satisfies the obligation in full, or creates excess proceeds which under the note and applicable law should be returned to the debtor.
- Creates an opportunity for some party to get free money as revenue. In the current environment nearly all of the collection money obtained without investment or funding of one dime is going to these intermediaries who have been dubbed by many experts and legal scholars as pretender lenders.
Wall Street is not stupid. They have always understood that they could increase the pressure for a bubble and make money trading securities based upon rising prices. And they have always known that they could bet against the market, knowing it would crash.
Editor’s Note: Homeowners are not seeking a windfall but they are entitled to it. In all events they should not be requried to pay off a virtual debt without first receiving the benefit of the actual bargain into which they were lured by deception.
Filed under: foreclosure |
Understood this is important Neil. I have posted this before. Question is as to your definition of “creditor.” In 2009, the Federal Reserve, in response to Dodd Frank, clarified a “creditor” as related to TILA and disclosures to homeowners and new TILA rules by Dodd Frank. By the Fed Res Opinion (now codified as law through Federal Register, a “covered person” is the “creditor” subject to the law. The Fed Res states: “To become a “covered person subject to Section 226.39, a person must become the owner of an existing mortgage loan by acquiring legal title to the debt obligation. Consequently 226.39 does not apply to persons who acquire only a beneficial interest in the loan, such as when the owner of the debt obligation uses the loan as a security to obtain financing and the party providing the financing obtains only a security interest in the loan. Section 226.39 also does not apply to a party that assumes the credit risk without acquiring legal title to the loans. Accordingly, an investor who purchases an interest in a pool of loans (such as mortgage-backed securities, pass-through certificates, participation interests, or real estate mortgage investment conduits) but does not directly acquire legal title in the mortgage loan, is not covered by Section 226.38.” Thus, when you state “investor” – they cannot be the creditor unless legal title is acquired. Legal title is not passed to claimed beneficiary investors. Therefore, under TILA – do these homeowners have NO CREDITOR? Do you imply the security underwriter is the Creditor? Or is there no creditor in violation of TILA? Thanks.